Imperial Oil (IMO) Q4 Earnings Meet Estimates, Sales Lag

Imperial Oil (NYSE:IMO) released fourth-quarter 2019 results, with adjusted earnings of 27 cents a share meeting the Zacks Consensus Estimate. The quarterly earnings were driven by higher price realizations. However, the Canadian integrated oil and gas player’s bottom line plunged significantly from the year-ago quarter’s reported figure of 82 cents due to turnarounds as well as lower refinery margins.

In the fourth quarter, revenues of C$6.18 billion fell short of the Zacks Consensus Estimate of C$6.7 billion. Nevertheless, the top line increased from the year-ago quarter’s figure of $6.0 billion.

Segmental Information

Upstream: Revenues amounted to C$3,297 million that increased from prior-year quarter’s level of C$2,290 million. Profit in the segment amounted to C$96 million against a loss of C$310 million in the year-ago quarter. The improved was induced by lower operating expenses of about C$70 million in the upstream segment and higher realizations of about $770 million.

Net production volumes during the quarter under review averaged 362,000 barrels of oil equivalent per day (Boe/d) compared with 383,000 Boe/d in the year-ago quarter. Total oil and NGL output amounted to 335,000 barrels per day (BPD) compared with 360,000 BPD in fourth-quarter 2018. Net oil and NGL output from Kearl and Cold Lake totaled 142,000 bpd and 115,000 bpd, respectively. Syncrude output averaged 61,000 BPD, down 31.5% from the year-earlier quarter. The downside was primarily caused by planned turnaround activity, which began in August 2019 and was completed in November. The turnaround activity impacted share of gross production in the quarter by an estimated 17,000 barrels per day. Net natural gas production came in at 163 million cubic feet per day (Mcf/d), higher than 138 Mcf/d in the comparable quarter last year.

Bitumen (accounting for 77% of the output) price realizations totaled C$42.80 a barrel, up from C$16.73 in the year-ago quarter. The company received average realized price of C$74.12 per barrel of synthetic oil compared with the year-ago quarter’s C$47.63. For conventional crude oil, it received C$43.44 per barrel compared with the year-ago quarter’s figure of C$22.95. Prices of NGL and gas declined year over year to C$20.47 a barrel and C$2.02 per thousand cubic feet, respectively.

Downstream: Revenues totaled C$5,810 million, down from $6,295 million in fourth-quarter 2018. Also, net income of C$225 million fell from C$1,142 million due to lower margins of about $680 million and planned turnaround activities of about $220 million.

Refinery throughput in fourth-quarter 2019 averaged 321,000 BPD, down from the prior-year quarter’s level of 408,000 BPD. Capacity utilization of 76% deteriorated from 96% in the corresponding quarter of last year. The downside was caused by planned turnaround activity at Nanticoke. Petroleum product sales were 457,000 BPD compared with the prior-year quarter’s level of 510,000 BPD.

Chemical: Revenues of C$226 million fell from C$331 million in fourth-quarter 2018. Net loss was recorded at C$2 million compared with the year-ago quarter’s figure of C$55 million. The decline was caused by lower margins.

Total Costs & Capex

Total expenses of C$7,795 million were higher than the year-ago quarter’s level of C$6,804 million.

In the quarter under review, the company’s total capital and exploration expenditures amounted to C$414 million, lower than the year-ago quarter’s figure of C$493 million. Of the total expenditure, 66% was allotted to the upstream segment.

Financial Performance

Imperial Oil’s cash flow from operating activities came in at C$1,024 million in the quarter under review. The figure improved from the year-ago quarter’s level of C$871 million.

Importantly, the company paid back C$467 million to its shareholders through dividends and share buybacks in the reported quarter. Imperial Oil also paid out 22 Canadian cents as dividend per share compared with 19 Canadian cents a year ago.

Imperial Oil repurchased 9 million shares worth C$301 million including those bought from Exxon Mobil Corporation (NYSE:XOM) .

As of Dec 31, the company held C$1,718 million in cash and cash equivalents. Its total debt amounted to C$5,190 million, representing a debt-to-capital ratio of 18%.

Outlook

The company foresees total production of roughly 415,000 Boe/d in 2020 on the back of volume gains at Kearl associated with the supplemental crushers. Throughput is expected at roughly 375,000 BPD in 2020, with nearly 400,000 BPD projected for first-quarter 2020. Substantial planned maintenance is expected to be undertaken in the downstream segment.

An 11-week turnaround at Sarnia, which is the largest turnaround at the chemical plant since 2011, is planned for the second quarter. Similarly, a turnaround is scheduled during the third and fourth quarters at Nanticoke and Strathcona, lasting approximately 7 weeks and 8 weeks, respectively.

Total capex for 2020 is earmarked in the range of C$1.6-C$1.7 billion.

Zacks Rank & Other Stocks to Consider

Imperial Oil currentlycarries a Zacks Rank #2 (Buy). Other top-ranked players in the energy space are California Resources Corporation (NYSE:CRC) and Marathon Oil Corporation (NYSE:MRO) . Both the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

California Resources Corporation has trailing four-quarter positive earnings surprise of 711.1%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.

Marathon Oil Corporation has trailing four-quarter positive earnings surprise of 197.8%, on average. The company’s earnings beat the consensus mark in all of the last four quarters.

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